We’re looking for a way to create a win-win-win out of the following situation. Some details are changed for privacy.
For about 7 years we’ve known a young woman who is now a solo mother of 2. Her ex-husband is settled interstate, in the throes of a career change, and paying negligible maintenance. When they split up they had no financial assets and the kids were toddlers. About 3 years ago the woman’s parents refinanced their own house, I think from a P&I to a line of credit, to buy a 3-bedroom house which she rents from them. She says her rent is about half market rate. It’s also the most she can afford at the moment.
The parents have now considering selling the house to resolve a financial problem of their own. This is only one option and it might not happen, but hearing about the possibility set me to wondering if we could put together a deal that gives the parents a fair price for the house, the young mum a chance at building some equity as well as staying in her home, and us a fair return.
Without disclosing locations, it’s an area that I think would show capital gain on current prices within 5 years, although the trend at the moment is down. Estimated price around $310K. Current rent $160 p.w.; tenant should have capacity to increase that from next year. House is about 30 years old, brick veneer, good condition.
We’d be borrowing 100%, probably using our PPOR as security for part or all of the loan. I’m thinking an Interest only loan for us, and some form of lease option contract with the tenant, is the only way this might work.
Thoughts? Suggestions? Warnings?
Thanks
Ghoti
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Without music, life would be a mistake.
ghotib, firstly im deffiantely no expert but you have asked for other thoughts so here goes. Secondly I try and stay away from investing with friends or family as the only ship guaranteed to sink is a partnership, however nice of you to look for a solution for your friend and try and find a win situation but that deal would deffiantley be heavily negative geared especially with 100 % finace. In fact it would take a rather very large deposit to get it close to being + cf but if the capital gain is going to be good then i guess if you can hold out till then you will benefeit then if all goes well but youd be to dependant on the hope of good capital gain in my opinion a unstable property cycle.Normally with a lease option the rent is inflated for basically a bit of principle of the price when he/she decides to take up the option, at $160.oo per week the rent is deflated already. Everyone to there own but myself personally i wouldnt go near this deal great for the tennant but maybe not that great for the invester. Your friend could possibly be alegible for the FHOG which you could look for a win situation to help put a deal together ? [whistle]
If you want the rainbow youve got to put up with the rain!
I know the kind of deal you would like to put together because I am trying to do it for my GF who is also a single mum, struggling, partner far away.
She currently rents from me and I have recently been looking at the numbers to try to find a deal where she could buy from me – as I would like to sell later this year anyway and am concerned for her.
However, even though the house will sell anyway, there is just no way she can afford it. I am now looking for a more affordable property and perhaps that is what you could look at too.
The deal that you are trying to work would be great for her but are you in property as a benevolent fund? No, none of us are, even though there are times like this when we care greatly.
I am finding this situation with my friend as a great push to be creative and excellent brain food, maybe you will too?
Keep working on it and you’ll know what to do.
Rakky ;P
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